Pepkor’s profit dragged down by doubled finance charges
Shareholders of the holding company of Pep and Ackermans will receive a maiden dividend of 27.8c, a third of its earnings for its first year on the JSE
A doubling of finance charges dragged Pepkor's net profit down 19% despite it growing sales 11%, its 2018 financial year results released on Monday morning showed.
The retail group — whose chains include Pep, Ackermans and Tekkie Town — issued its results for the year to end-September an hour after the JSE fined it R5m for failing to adequately disclose liabilities to its parent group Steinhoff International and its senior management.
“As described in the pre-listing statement, significant shareholder funding was introduced in the group’s capital structure upon listing. This resulted in an increase in net finance costs from R620m in the 2017 financial year to R1.2bn in the current year,” Pepkor CEO Leon Lourens said in the results statement.
Pepkor declared a 27.8c maiden dividend. The retailer said it had revised its dividend policy to three times earnings cover.
The per share dilution caused by its number of shares in issue increasing 34% to 3.45-billion at September 30 from 2.57-billion contributed to headline earnings per share (HEPS) falling 37% to 84.5c from 133.6c.
The group’s overall revenue grew 11% to R64bn while net profit declined 19% to R2.9bn
The group segments itself into four divisions, dominated by clothing and general merchandise, which contributed 66% of revenue and 95% of operating profit.
Its furniture, appliances and electronics division managed to narrow its operating loss contribution to R137m from R310m.
Pepkor said this loss was mainly due to the costs of closing Poco, a German furniture chain half-owned by Steinhoff International until its owner Andreas Seifert reversed the deal.
“The business is now profitable from an ongoing operations perspective and is optimally positioned following its restructure, brand consolidation, and significant reduction in credit reliance to 18.1%,” the results statement said.
Its building supplies division grew revenue by 20% to R8.1bn, but operating profit declined 12% to R214m.
“The two acquisitions over the last three years, Iliad and BSG, have caused some distraction in the business,” Pepkor said.
Pepkor’s “other” division, which the group also refers to as its fintech division, grew revenue 36% to R5bn and operating profit 10.6% to R250m.
“The Flash business, which represents more than 90% of this segment’s revenue, reported aggressive growth. Flash provides virtual solutions in the informal market and increased virtual turnover by more than 20%. The number of Flash traders increased to 145,000 from 121,000 a year ago,” Lourens said.
“The Southern View Finance SA call centre and Van As debt collection operations performed below expectation due to additional costs incurred.”
Correction: November 27 2018 Pepkor responded to an earlier version of this article by saying trusts related to Wiese do not have major shareholding in Pepkor. Wands is not part of Pepkor, but belongs to Fulcrum. The disputed paragraph has been deleted.
According to Pepkor, the JSE did not conclude that it deceived investors with regards to loans and guarantees, but said it was disclosed but not adequately.